20VC: Are Burn Multiples BS in an AI World | Sam Altman Needs $1TRN of Energy | Klarna, Figma, Stubhub, all Down: Are Public Markets Turning? | FiveTran and DBT: Is the Wave of Consolidation About to Begin?

AGENDA: 03:58 Understanding Burn Multiples and Capital Efficiency in an AI World 11:54 What Metrics Founders Need to Focus on in a World of AI 19:31 The Role of Kingmakers in Venture Capital: Harvey, Abridge, Profound 33:42 Klarna, Figma, Stubhub, all Down: Are Public Markets Turning? 36:35 OpenAI Needs the Same Energy as Japan… WTF! 41:09 How Can We Fund the $1TRN Sam Altman Needs for Energy 52:39 FiveTran and DBT: Is the Wave of Consolidation About to Begin? 59:44 Does Private Equity Need to Change in a World of AI 01:06:23 Political Expression and Corporate Responsibility

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  There's only two ways of pricing a deal. You price a deal on hope or you price a deal on the multiples. A $15 million revenue company that's perfectly good and has reasonable growth is actually of zero value to a VC because we're in the upside option game.

• 0:14Speaker 01

  And I hear too many folks leaving, they're like, oh, you're triple, triple, double, double or better. You're golden. Don't worry, kids. And I think that's terrible, terrible advice in 2025. Terrible advice.

• 0:23Speaker 00

  Whatever the prize is for being the best company in AI, OpenAI is going to get that prize. Have a great day.

• 0:29Harry Stebbings?

  This is 20 VC with me, Harry Stubbingson. It is my favorite show of the week. Jason Lemkin and Rory O'Driscoll are back to shoot the shit on the biggest news in tech. Today, we have Sam Altman needing a trillion dollars to fund energy requirements that are the same as Japan. We have the largest LBO ever in EA. We have Figma down. We have Klarna down. We have StubHub down. It does get more optimistic. Don't worry. And it is a fantastic show as always. I want your feedback. Let me know what I can do to make these shows better for you. Harry at 20vc.com. But before we dive into the show today, let's talk about agents, specifically Piper, the AI SDR agent brought to you by Qualified.

• 1:13Harry Stebbings?

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• 1:54Harry Stebbings?

  That's qualified.com/20vc with the 20 VC spelt out in letters for goodness sake. And while Piper builds your pipeline, HubSpot gives your business the AI tools to scale faster. Think about listening to this podcast right now. You're probably multitasking and catching 17 Maybe eighty percent of it. How dare you. This voice is so captivating. Now flip that and imagine catching only twenty percent. That'd be pretty crazy, right? Yet most businesses only use twenty percent of their data. All the important details in call logs, in emails, in chats, they're just left floating in digital space. Well, HubSpot gives you access to those insights to help you grow your business. Because when you know more, you grow more. Visit hubspot.com to get the full picture today.

• 2:37Harry Stebbings?

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• 3:19Harry Stebbings?

  So it's a unified platform for secure, company-wide AI adoption and productivity. Tech leaders set policies and oversee usage. Business teams get the models they actually need. Try it yourself with a fourteen-day free trial at nexus.ai/20vc.

• 3:36Speaker 00

  You have now arrived at your destination.

• 3:39Harry Stebbings?

  Guys, I'm so excited for this. I always love this. And it's evening time here. It almost feels atmospheric. I've got my questions ready. We're good to go. And Jason, I want to start with one that you just suggested, which was fantastic. Iconic did a report, and there was a really interesting takeaway for you. Can you explain what that takeaway was and how we should think about it?

• 3:59Speaker 01

  Yeah, they did a seventy-three-page state-of-the-software report. We don't all have patience with over eighty charts. But the one one that kind of hung with me, along with the triple-triple, double-double discussions we've had here, that you had from Hemant, from General Catalyst, right? You know, what's the point of venture in 2025? Rory's other points that... Seventy percent of the money is going into less than 20 deals. But this one analysis that Iconic did was interesting, which is that, yes, AI native companies, the ones we're all so excited about growing so quickly, under 100 million ARR, have terrible free cash flow margins, minus 126%. It's much worse. Non-AI companies are minus 56%. They're still burning, right? Classic checks.

• 4:41Speaker 01

  But because they're growing so quickly, actually, the burn multiple is much lower. They're actually capital efficient because they're growing so goddamn quickly that even if they're burning a lot along the way, right? Even if they've got afterburners on, they're getting to Mach 10 or whatever it was in Maverick so quickly that if the capital efficiency is better, this is where VC should be putting all their money, right?

• 5:03Harry Stebbings?

  Can I interject and just ask for an explanation for those that don't understand why the burn multiple is better if they're spending more? Can we explain it for those that don't understand?

• 5:13Speaker 01

  It's basically how many dollars of ARR do you get out of each dollar that you're spending? How much revenue are you creating for each dollar of venture capital you're lighting on fire? It's a weird metric because you could be seemingly efficient and run out of money, right? If you don't have enough money in the bank account, right? It doesn't mean you're profitable. David Sacks sort of coined it. And I think when everything was the same in SaaS and B2B in 2021, it made a lot of sense. All the companies were the same. They all kind of grew the same. As you have companies with lower gross margins, at first, that kind of broke it. Then VCs stop wanting to fund everything in 2022, that broke it. And then AI breaks it because we've never seen growth like this. But the margins are lower. A lot of them have token costs. We talked a lot, some don't. Talked about folks like Higgsfield that are somehow are almost cash flow positive 50 million

• 5:58Speaker 01

  or Lovable and Repl that are burning a few dollars of venture capital. But even if you throw, how much did Lovable raise in the last round, Harry? 200. 200, okay. But the point is, oh my God. Let's imagine you throw 200 into Lovable and they're burning $6 million a month. That would shock most CVCs, right? But if they're going to add 300 million of ARR, it's actually, the burn multiple is actually quite low. It's quite efficient from a company ARR building perspective. That's the thought. And then you should put even more of your money into these companies, right? The theory is you get the most Leverage out of your venture dollar in these types of companies, right? Because you're getting the most ARR per dollar invested.

• 6:36Speaker 00

  I think, you know, there's the old expression about models that's also probably true about ratios and rules of thumb, which is all models are wrong, but some models are useful. In the same way, all ratios are wrong, but some ratios are at times useful. And I think the burn multiple is a very useful ratio. But I think Jason said it really well. There's a whole bunch of implied assumptions that go into that, not all of which are true, right? So if you use it blindly, I thought it was a brilliant insight when David coined it. And it really is helpful to compare companies, different companies at different stage and get a sense of capital efficiency. But there's about three or four different assumptions in it that if you forget them and just focus on the burn multiple, you're going to blow up and it's worth disaggregating that. So first of all, let's say what it is.

• 7:18Speaker 00

  Burn multiple basically says it's a ratio between the amount of ARR you add and the amount of money you spend to add it. So if you spend $2 in total burn for every $1 of ARR, right? Your burn multiple's two. And if you think about it, big crude comment here, if you're being valued at 10 times ARR. So you just spent $2, you added $1 of ARR, that's worth $10, you're up. You put in $2 and you got 10% of market cap. So it is a very valid construct. So at that level, it totally works. And obviously, this is one of those weird multiples where lower is better. So one is better than two. And there's some idiosyncratic stuff, like when it crosses into positive, it goes into a negative number, makes you kind of head hurt. We track it a lot internally, so we've wrestled all those things.

• 8:01Speaker 00

  But at a high level, it's a super good way of comparing things, companies with different growth rates and or even just different absolute sizes. Super good insight. Embedded in it, though, is a whole bunch of assumptions. One is about boring economists here, ceteris paribus, everything else being equal, right? The implied assumptions are the ARR is real, but we know it's often not. And it's net ARR, so you're taking out churn. But if you're growing fast, you can hide churn because you're churning 12 months ago as customers, which was maybe 2 million, and this year you're at 10 million. So churn is understated, so you can hide that. That's the second thing. So your, is your ARR real? Is your churn real? It does pick up in growth. Margin, but again, the same thing. If you're growing hyper fast and your margins are moving, you're not picking up on it.

• 8:45Speaker 00

  And then last probably is less so for these companies, but definitely true for the AI model companies. It doesn't take into account CapEx, which isn't true for the hundred million dollar ARR companies, but is definitely true at CapEx. And you know, you can't ignore, even in a crazy world, 10 billion a CapEx in a company. So all those things are what says the model, when you're comparing, it's not like would like. That's one big picture comment is there's a whole bunch of applied assumptions in there. Which is why, even though we love those kind of metrics and the one gesture you mentioned, we were chatting before that kind of the magic number, which is what sales and marketing, we actually coined back in all four, right? They're all good assumptions, but we've actually come back to saying there's a real advantage in seeing the gap revenue accounting also

• 9:27Speaker 00

  to make sure all the money is, for lack of a better word, just showing up for real. So there's a lot of noise in that multiple. And I think when they were all SaaS recurring revenue businesses, all seat based, all 90%, 80% gross margin with no CapEx, all enterprise sales with low churn, it absolutely made sense. You could compare two companies. And that's why by 2019 or 20, it almost felt like, you know, fill in the form, give me the valuation. None of those conditions are true now. I think it's totally up for grabs.

• 9:55Harry Stebbings?

  Does it as a framework carry no weight then? Given the volatility of all the different inputs, which mean the output is less reliable. Respectfully, is it even a reliable framework to look back on?

• 10:06Speaker 00

  It's a decent framework. We still use it. It's absolutely decent framework because there's things you can do to kind of get the same idea. You can look at, for example, you can look at Delta Gap. In other words, you can see how the gap revenue changed because if you were doing 2 million at the start of the year in ARR and 10 million at the end of the year, the Delta ARR is eight. But if you also, another way to get to the same thing to check for quote honesty is to look at, are you recognizing 2 million of gap run rate in January? And are you recognizing 10 million of gap run rate in December? And it kind of checks on that. So there's things you can do to deal with that. But there's a lot more noise in the system. You have to worry about churn and you have to, there's other issues even beyond that we can come to. But even just at the churn, are you picking up all the metrics? Is it forward looking enough?

• 10:50Speaker 00

  Especially on these trials, there's an implied assumption. Remember going back to my simple model. I was spending $2 million, getting $1 million of ARR, being valued at 10x and therefore creating 10 million of value. If that ARR evaporates a year later, then I didn't create value. So the implied assumptions around stickiness, all of those things are up for grabs. It is still useful, but we're far beyond the stage, which we were in 2019, where you can just plug the numbers into the number cranker and come up with a rough and pretty accurate estimate of the valuation of a company. We are not at that stage anymore. We are not in Kansas.

• 11:25Speaker 01

  There's a meta question that I think about mostly when times are good and when companies aren't running out of money, but I mean, venture in some ways is an ARR arbitrage, going to your point, right? And so when you're north of 10x revenues, venture works. You put in this small amount of money and the magic thing is we can talk about free cash flow

• 11:42Speaker 00

  Yeah.

• 11:43Speaker 01

  and profits, but the reason it's a tolerable business is we really get to trade on ARR even through the IPO to some extent, right? We get to trade on this ARR and it's, as long as it lasts, it's a great deal and as long as the multiple is high enough. That's where the leverage is, right? That I get paid off this ARR. And so if the burn multiple is attractive, it just makes the whole thing on afterburners or steroids, doesn't it?

• 12:04Speaker 00

  High is bad, low is good, negative is better. But that's not obsessed on the ratio. The real comment I think is saying is when all you're graded on is growth. It's not easy because growth is really hard, but at least it's a one dimensional scorecard, especially on ARR, right? When you're graded on growth plus profitability, which happens to us all at some point in time, it gets a lot harder. Because you're right, there's often, especially in enterprise software companies, an ability at the margin to push really hard on the sales and marketing pedal or the free user pedal, and you get some revenue, but just not commensurate with the marginal spend. And as long as you're just being rewarded for growth, you can do that. But once you have to deliver profitable growth, it all gets harder. That's not the shoe that's dropped yet, but it will. And I just want to make one other point on that.

• 12:49Speaker 00

  It's just so important. People talk about burn multiple and they're like, oh, my burn multiple is good. But they sometimes just forget that there's also absolute burn and then not having money. You know, They do forget. Because the implied assumption, again, I remember thinking when David Sack published, it's a very clever comment is if you have a good burn multiple, you should in theory be fundable. If you're adding a lot of ARR and you're spending a lot of money to add that ARR, then in theory you are fundable because you are venture value accretive. But that's a theoretical construct and cash in the bank is an actual material construct. And sometimes I see people tell me their burn multiple and not tell me their cash balance. And I'm like, so yippee, you could have a great burn multiple and you still could be out of cash on Friday. I need to know more.

• 13:30Speaker 00

  So to your point, Jason, you can't let the ratios lose sight of just having money versus not having money. And you see that behavior sometimes where you're like, I don't care about your burn multiple. I care about the fact you have less than six months cash. You know, what are we going to do about that?

• 13:44Harry Stebbings?

  Guys, I have many companies with good burn multiples and they are going out to fundraise now and they are not getting love. They are not getting attention. They are going, Harry, I don't get it. I've been brought up to understand burn multiples, to understand growth. What is going on? And I'm just seeing a very stark binary world of haves and have nots. Are you seeing the same? And if you are, what would you advise this generation of founders who have good companies and good numbers and are feeling very confused by a rejected VC community?

• 14:17Speaker 00

  Wow, it almost sounds like therapy, doesn't it there? I'm confused, I'm rejected. But on a serious note, it's a super interesting subject because there's an embedded set of assumptions in there, which is at some high level, does no one give a shit about anything that was founded before 2022? That's really what you're saying is all these old things, how uninteresting are they? But I think the high level comment is it's not that simple. You know, it's not going to be just no one cares. It's like, because look, look at the recent IPOs, many of them were non-AI native by definition. Most of the average IPO that went public was plus or minus 10 years old. By definition, it's pre chat GPT. So they've built perfectly good businesses capable of going public, maybe getting some lift from AI, but they're a thing. So I don't think it's all going to just quote, go away.

• 15:02Speaker 00

  But I think what you are wrestling with is winning AI first world in terms of mental models. So when VCs look at any deal, There's only two ways of pricing a deal. You price a deal on hope or you price a deal on the multiples. When you price a deal on hope and growth, you can lean in on anything and you can get prices that quote unquote make no sense because the growth ultimately comes and it all pays off. Once you start valuing things on quote unquote the fundamentals today, then you can value a public company because at 400 million, it's not nothing. But to what we're talking about before we got on a $15 million revenue company that's perfectly good and has reasonable growth is actually of zero value to a VC because we're in the upside option game. It's a perfectly good company. Someone should lend them some money. They should get profitable, but at super subscale.

• 15:47Speaker 00

  The mental model of the VC is saying a lot of the time you can't get from here to big IPO and that's the business I'm in. So therefore I don't have any embedded option value. So therefore I can only value on fundamentals. And if you're doing 400 million, I could multiply 400 by four and tell you you're worth 1.6 billion. You mightn't like it, but I'll give you the money. But if you're worth 4 million, you have no value because 4 million is never going to be an IPO. Therefore I'm just not going to do it. So yeah, there's a lot of companies that are going to have to build a much more capital efficient model. And again, maybe can make great outcomes, but it's kind of it's the zeitgeist, it's the group thinking that's not in your favor. I don't know, Jason, does that kind of resonate?

• 16:25Speaker 01

  I think that's right. I see something that's worse to Harry's point. I think Harry's point on on X was, listen, I've got a couple of companies that are growing better than triple, triple, double, double, and they have an AI element and they're interesting and they're struggling to get funded because they're not ultra breakout. That's a slightly different point. And not only is that true, I'm seeing something more problematic that's at the edge of toxic, which is that boards and investor syndicates that I'm a part of aren't aligned on this. They're not seeing it. I am seeing many VCs that have been around for a while, especially one that are doing just fine, right? Maybe that aren't going to every AI hangout in San Francisco or everything, who when they hear numbers like this, there's no concern. I had a portfolio company kind of like this and my advice to these guys is just take it.

• 17:10Speaker 01

  If it's decent, just take it because you're some of these VCs are still living in the past. They're still living in the past and I think they give her terrible, a borderline inadvertently. Toxic advice. They're still giving 2022, 2021 advice from the corner office. And I think it's dangerous for founders.

• 17:26Speaker 00

  Can you clarify that? What are you saying? I'm genuine comment, which by the way, speaks to the complete lack of certainty and what about this issue? Are you saying the bad advice is to need money, to raise money or not to? I mean, are you saying it's a dumb thing?

• 17:39Speaker 01

  Here's the bad advice. I mean, um, Roy Harry and I's company, we're at 15 million here. Our, we're going a hundred percent.

• 17:44Speaker 00

  Yeah.

• 17:44Speaker 01

  Okay. Our burn ratio is good.

• 17:46Speaker 00

  Yeah.

• 17:46Speaker 01

  Uh, we're an AI enhanced mug making company. Okay. It's good, but the TAM is not enormous, but the numbers are there, right? And I see VCs saying, don't worry, you'll get the round done. Take our time. Let's optimize around price. Let's see how it goes. There's no rush. And then I hear, hey, you know, scale wants to put in money at 250 on that deal. And my advice today is it's like Rory's a pretty good guy, but even if he isn't, take that deal now. And I hear too many folks leaving. They're like, oh, you're triple, triple, double, double or better. You're, you're golden. Don't worry, kids. And I think that's terrible, terrible advice in 2025, terrible advice.

• 18:21Speaker 00

  I, I agree. I think that those are perfectly good. They're in fact are great numbers, right? And with an upside story, you could fund them. But I agree, a totally non-AI story. If you're doubling at some and you're still so far below 400, 3, 400 million exit value, that you're, you're many years away from it and you can get a deal done. You should take it. You shouldn't be optimizing. What you're saying, which is good advice is if you're one of those companies, you should be getting your funding done and being damn glad to get it done.

• 18:47Speaker 01

  Yeah.

• 18:48Speaker 00

  And it may well be that four years, five years from now, you'll have the last laugh. And she'll be sitting there going, I told you, you idiots, this is great. And you can email all the guys who turned you down and laugh. But right now there was a lot less money for that deal and it makes sense. It's again, it's the comment of if you're at 200 million, I can tell a story. Cause again, I'm going to repeat myself. Of the 15 IPOs year to date, 10 of them have almost no AI story. So it's not like you can't make money outside AI. That's absolute bullshit. But to start today at 10 million and to believe in what? Seven, eight years of compounding to get you to an IPO eight years from now? That's a much harder undertaking in a world where everyone feels that the AI is the story. So those.

• 19:30Speaker 00

  Companies, Jason, you're right, is that, and in fact, we have one in our portfolio I'm thinking of specifically. You should just get the deal done, raise at a reasonable price, continue to grow, but be capital efficient. Don't get lost in your just your burn multiple, focus on your cash. If you're right about your business, you'll be right in the end. And I think keep on being an entrepreneur is being willing to prove everyone right, even when they all think you're wrong. But you should operate for the next couple of years as if cash is pretty damn tight and scarce.

• 19:57Speaker 01

  I don't think there are any non-AI deals anymore. There's cybersecurity, there's fintech, then there's B to B and B to C. I think that's all that there is in our world, okay? Even if you're not an AI company, you are, I mean, you know, the other thing that's said in the iconic report that just came out, there's September report. Ninety-four percent of public software companies call themselves AI companies and the majority mention their AI agents. Adobe has five billion of AI influenced revenue, so. My point is, we're leaving the day where there are two types of companies. Now, we can debate what an AI native is, but like, I just don't think. Most VCs are going to pick up the email or the phone anyway, like, they're just going to assume everything as an agent, like, it has to.

• 20:33Harry Stebbings?

  One thing that has really shocked me is the memetic, and this sounds obvious. Given the sheet plate analogies applied to venture, but it's how concerned investors are by going against a kingmaker. Whether it's Harvey or A Bridge or any of the king made companies. We have a couple of companies which are the second or the third. And going against the kingmaker in the valley is the most unpopular thing in the world. You cannot get funding and that's obviously very binary and of course you can, I'm being deliberately binary. But wow, investors are not willing to fund anything if it touches a kingmaker or is in close proximity.

• 21:12Harry Stebbings?

  In other words, founders listening, when you raise, raising to deter others from raising is a really working strategy right now.

• 21:20Speaker 00

  It's definitely a strategy and it does have an impact. The closer your customer base is to also being valid companies, the more it might act as a deterrent because your customers might also feel that you're the king. But I wouldn't overex. I do see the effect. I mean, maybe there's two separate things. There's, do I believe that that thinking exists in venture? Yes, I do. I don't fully share it, but I acknowledge that, you know, you have to factor it into your decision making and your risk analysis. The question is, is it a binary no? Or is it a you factored in and then look at the fact? We're the latter. We have done deals where the leader's been funded by one of the top firms. And we've also done deals where, you know, you look at funded by the top firms. Oh, and by the way, they're doing really well. Maybe you're not going to get there.

• 22:03Speaker 00

  So it definitely is a factor. Then the second question is, provided that second company can access capital, do the customers give a shit? And the answer is, they do in some markets where it's very value centric. If your first customers are also VC customers, are VC backed companies, then you get this do loop. And look, the reality is, someone's raised money from Sequoia, they have a big portfolio, they're known to be aggressive. You're like, hmm, do I want to do that? You know, if you compete against that. If you're selling to oil and gas companies, they barely can tell the Sequoias from their KPs. You know what I mean? Right? So it's TBD. I totally agree with the thing. It's important, but not dispositive, I would say.

• 22:41Speaker 01

  So what's different now, going to Harry's point, right? VCs have always been less excited in investing in number two and number three outside of a 2021 bubble. I remember when Sequoia called it the Postmates effect. In 2021, there was so much money to be made that Sequoia decided they're okay investing in number two and number three. Because if you could make billions off Postmates, you didn't have to be in number one. They called it the Postmates effect. But people also understand there's different number ones in segments. If you're really verticalized, there are different number ones. And Revolut and Chime are not the same company, right? And we can come up with a million examples. What is a little different in AI? In many cases, there's not an established brand and there's so much change and so much new budget and so much confusion that so many buyers are under pressure and have a desire to make a purchase.

• 23:24Speaker 01

  They want to buy a Harvey in legal or they want to do something like Clay, which is powerful, but they may not even know what it does. But they know. They're under the gun in GTM and being number one is so powerful when people know they want to do something and they've got to do an LLM for legal. They've got to do this AI research for their clients and tell me who the hell to buy, Harry. And that will calm down in a couple of years because the leaders will settle down, right? And it's why lovable and replit are in a death match and it's very powerful. They're both at nine figures in revenue. They won't kill each other, right? And other folks like you want to be that brand that nervous folks don't know who to buy. And I was just talking with someone at Bolt that closed a massive deal against lovable the other day. And they'd heard of both of them, but no one at lovable called them back.

• 24:06Speaker 01

  And so Bolt became trusted, so they bought Bolt because they were kind of equal on the discovery. But who do I trust? Do I trust the ones where the humans are in the deal and helping me? Or do I trust the one where it's 90 days to get an appointment? Like when I was at Adobe, we waited five years to implement Salesforce. It's just not happening with AI, right?

• 24:22Speaker 00

  Two comments on that. One is if we're actually going to be responsive to Harry's question, you have to separate being number one.

• 24:28Speaker 01

  Yeah.

• 24:28Speaker 00

  Which I agree with you. In the end, when the money is made, the number one makes in a business market, 67% of the market. The number two makes 20, 30, the number three makes 10 and anything after that doesn't even matter. And in a consumer market is even more skewed. So I agree. In the end, when the total is written, you want to be in the number one in a segment. And you'd be better off in a subsegment and being number one than being number four in a bigger segment. I totally agree with that.

• 24:51Speaker 01

  Look, if nothing else, if you're not number one, don't spend like you're number one.

• 24:54Speaker 00

  That's true.

• 24:55Speaker 01

  Even if you're growing pretty quickly, like Harry said, if you're the clear number two or number three and 80% of VCs are going to drive by. If you burn 100K a month, like you actually may have the best exit, like for founders, dilution and time adjusted. But don't be burning 2 million bucks a month.

• 25:08Speaker 00

  Which actually triggered something else that I should have actually said because I glossed over this. And I think Harry hinted at it, but just to call it out. You know, if two companies have $20 million, one from, you know, great VC, one from less well-known VC, it helps at the margin. But what I didn't say and Harry mentioned, I want to go back to it is the thing we're seeing now is because that first company got 20 million from awesome VC. Like three months later, they get another 60 million from a bunch of people who want to follow awesome VC. Now it's not a lot of fair fight anymore because now they got 80 million. So we're definitely seeing some of that where it's not. So much the money itself that's creating the momentum. It's the fact that the money sucks in more money. In the end, SoftBank proved to everyone's complete satisfaction that money alone cannot make winners, right?

• 25:53Speaker 00

  And which is very kind of them to run that economic experiment and, you know, prove the negative. So it's not in the end disposable, but there's no doubt in my mind, and I think that's where you're referring to, Harry. You are seeing some cases where you go, wow, not only are they got a great firm, they got Sequoia, they got Kleiner, they got whatever. But oh my God, there is another 80 million bucks on top of that from other people. Now you gotta say, not just I do this, put this 20 million in this other company. But do I think this other company is nuanced enough and clever enough? And has a differentiated enough strategy to beat the wall of money? And if they've not, then it does cause a pause. So this is one of those examples, Harry, where, and I do this a bit. During the course of the conversation, I end up going, hmm, I get that point. I should nuance what I'm saying a little bit. It ain't as easy.

• 26:34Speaker 00

  The wall of money makes me trying to be pure and saying it's just about the company, perhaps a little unrealistic in today's market.

• 26:40Harry Stebbings?

  Do you think we are near peak madness, guys? Or do you think we'll look back and laugh at ourselves for having this conversation, given the might and the size of the markets that we're entering?

• 26:48Speaker 00

  You mean that it'll be so much, but you mean it's like, what's his name? Alan Greenspan talked about irrational exuberance. I never remembers that, but you know, worth pointing out, the markets kept going for three more years and never went back to 96 level. So is that what you're saying? Is that it's going to keep going? Or do you think we'll be laughing because it's gone backwards?

• 27:03Harry Stebbings?

  I'm saying, are we just so fucking peak that we've got 25 million A R companies being valued at 5 billion, 10 billion? Ilias being valued at 30 billion, Mirrors being valued at 10 billion with nothing. Are we going to actually look back and go, what morons? We're about to see the biggest transition in spend from software to human labor budgets and actually how small thinking we are.

• 27:24Speaker 00

  One of those two things has to be true because that's actually the interesting insight back. If that massive transfer of labor doesn't happen, then all these valuations are wrong by an order of magnitude. One of two things is going to happen in the next five or seven years, right? Either A, you are going to see pretty profound productivity changes. You're going to see companies like OpenAI literally being 200 to 300 billion dollars in revenue super quickly. Or option B, AI is still going to be wonderful, but you're going to have a readjustment period that may going to make your head hurt. And you're going to go, what were we thinking? Without speculating yet, though we can in a minute on which of them it'll be, one of them is going to happen soon.

• 28:01Speaker 01

  We're just getting started on what we're going to do in AI in B2B. It is so early. So much like so many of these other waves, the direction's correct. We're early. I feel it. I live it to ours vibe code. And I live it that we've replaced 11 people on our team with AI agents. I can see the future. I think pretty clearly we're just starting. For venture and for investment, though, not only am I worried about, I mean, we've never had $20 billion pre-revenue seed rounds before, right? This is not, never happened, right?

• 28:29Speaker 01

  But what I'm even more worried about that than now, we're back to the era where if you have a billion dollar round, you can't even get in TechCrunch. You certainly can't get on 20 VC. There's no way Harry's going to slot you just because you're the 14th company this week to raise at $1 billion for your AI vertical SaaS company. You're not getting on 20 VC. But when I met Harry, of course, you'd get on the next week, right? I mean, if you raised 200 million, you'd get on one of the first 50 episodes. My point, what I wonder is, are our loss ratios correct? If as VC firms, especially with larger funds, but actually I'm just as worried about seed funds because they're paying such high prices for such low valuations. As long as we get it, as long as we're cool if 80% of our unicorns implode or blow up or make no money, more importantly, just don't make money for venture.

• 29:13Speaker 01

  As long as we've got it all right, even if those are at 100 or 2X ARR and we modeled it properly. But I'm pretty sure we didn't model it right in 2020, 2021, those unicorns, the B2B unicorns, we did not model them correctly in terms of our loss ratio and expectations. As long as we have, I'm cool with the party. It feels almost risk free again, like it did in 2021. It feels risk free.

• 29:34Speaker 00

  Yeah, I actually think you need to, again, distinguish a little. I don't, but the valuation and loss ratios both matter, but maybe just distinguishing them just a little bit more, right? Because I think of the loss ratio as the time you just picked wrong, right? And remember, it's worth pointing out that the, so the number of times you picked wrong versus picked right, there was a product that got product market fit versus it didn't, right? And if you get that wrong, there's nothing you can help. Your valuations don't matter. It's just, you know, you wipe out. And that would be true if all your positive deals were pleasantly priced and if all your positive deals were highly priced. Valuation separate. Which is, okay, you got the picking right, but you can also make a second mistake.

• 30:15Speaker 00

  You paid up so much that you didn't make a return on those deals enough in itself or enough to cover your loss. So you gotta break it down. You can imagine people failing because their picking ratio was bad and they just put too much of the money in bad companies. Or you can also imagine people failing where all their companies were great, but the prices were so bad that they only made a subpar return, even though they only had a 30% loss ratio. Right? So you both, I mean, both things can, I mean, the sad thing about venture is you actually have to get both things right to make money because again, it turns out to be a hard thing to do to make money. The question today, I mean, it's funny because Jason said the loss ratios. I think the question Harry was leading with was the valuations, just, you know, even if all these companies are amazing, will you make money in all these companies a billion dollars?

• 31:00Speaker 00

  That's one question, and I think that's, the jury's out because there's an implied assumption there. If on top of that, your loss ratio starts going up, then you have a tough fund because you have both things going on at the same time.

• 31:12Harry Stebbings?

  I also think, by the way, that Alex Wang's acquisition created this very dangerous precedent in venture investors' minds, where they're like, well, if Alex is worth 14, Brett Taylor's worth 30, and then Ilya's worth 30, and then Mira's worth 10 or 15 or 20 or whatever it is. And it creates this kind of tidal wave of justifications for why we should pay entry prices where they are, rather than accepting that Alex Wang is just an anomalous event that may be seen in isolation.

• 31:37Speaker 00

  Irving Fisher, the big American economist at the time, famously said in summer 1929, "Stocks have entered, quote, a permanently higher plateau." Well, it turns out he was wrong by 90%. So whenever I hear the word permanent, I'm like, hmm, permanent, have valuations permanently changed? No.

• 31:54Harry Stebbings?

  But talking about permanency of value creation or sustainability, Figma is down 63% since IPO day at peak, now $53 a share. There's VCs who are still locked up. Maybe times haven't changed that much.

• 32:09Speaker 00

  No surprises here. It turns out stocks that opened 250% above their IPO pricing probably will go down from there.

• 32:16Speaker 01

  Look, you can't be critical about anything about Figma, but it's still trading at 26x revenue. The bigger issue is, I think, actually, you could argue that the markets are too generous today, right? The top group of public B2B companies trades at 20x ARR, only averaging 30% growth rate. Like, the bars actually were lucky. Like, on the one hand, we have this AI boom. On the other hand, you could argue because it's profitability or whatever, the markets are fairly generous today in ascribing relatively generous multiples to growth that seems fairly modest based on our historical standards. The bar is not that high on ARR growth to have a decent public multiple. If Figma was trading at 8x revenues, I'd be like, let's all quit.

• 32:59Speaker 01

  Let's just go golf and live off the fees like 2,000. Let's not invest at all because the world's been destroyed. But Figma is still at 26x revenues.

• 33:09Speaker 00

  And better than what Jason said is, there's a meta worry here, which is this. Like, because whenever you're pricing a deal, you're like, you're always going, this is the way I think of it, you're always saying to yourself, how much extra do you pay for how much extra growth? And if it's doubling, can you pay 20x? If, you know, if it's troubling, can you pay whatever, right? I'm just throwing out the numbers here, right? And you're doing that. And you mentally have a benchmark. And I always think like, the 10-year Treasury is the benchmark for, you know, the financial interest rate world. In my mental model of SaaS for the last 20 years, kind of the public company median was the equivalent of the 10-year Treasury. And the public company, as Jason said, up until about 2019 was 30% growth, roughly six or seven times revenues, right? NTM revenues, right?

• 33:52Speaker 00

  And then you said, okay, if that's worth 30%, then maybe 60% growth is worth, you know, twice that in multiple. And you could kind of build your little valuation ladder in your head from there. And you're right, Jason. Today, that 30% growth stock in the public markets is trading at 20x or 15x, twice the long-term average. And therefore, you say, and one of two things is true. Either it is different and because it's more cash flow positive now, or there's some good reason, or even the core bedrock price is wrong. And when that goes down, everything drifts down with it. It's just like when the 10-year Treasury... Treasury trades, everything that's linked to the 10 year treasury goes up and down with it, right? If the bedrock, if top tier SaaS 30% growth

• 34:35Speaker 00

  reverts to eight, seven or eight times, which was where they were happily for a decade and a half, and everything else goes down accordingly, it's gonna be a tough day. Go team, that gnaws at me every once in a while.

• 34:47Harry Stebbings?

  We have seen Klarna as well be hit, dips below IPO price, the StubHub was hit massively.

• 34:53Speaker 00

  Hard.

• 34:53Harry Stebbings?

  Absolutely bombed. Do you think there's gonna be an impact here in terms of people being less willing to go public with the more recent IPOs facing a harsher pricing environment?

• 35:04Speaker 00

  Somewhere, Bill Gurley is lighting a candle and saying, I told you so, right? In many respects, this is good. Actually, from the banker's perspective, actually, cancel that, not even, the banker's perspective, they're like, because their argument is always, you gotta pay them on the upside because sometimes they go wrong. And this is what going wrong looks like. If you bought some of these at the IPO, you're a hurting puppy. Right? If you bought StubHub, I think you've been down pretty consistently, a lot. Klarna traded up and then is down. So what it says is, what's the rational buyer of IPO stocks gonna do? He's gonna say, I actually want a little more kind of give in the valuation to make sure I can get this done. I'm probably gonna want a wider spread, because they all price off the public comps and they say, look,

• 35:44Speaker 00

  I can already buy one of 10 names at 10 times NTM revenues that are already public. If you're gonna make, buy some new shit that I haven't seen before, that hasn't traded before, I'm gonna pay you eight times so I can make a pop. And sometimes it goes wrong and they get a huge pop, but that's the, that's the thinking, right? You gotta give me a discount to buy the new thing, right? Now they might say, hmm, I've been thinking, there's more risk here than I thought, seven, right? And you're gonna see that, so I agree, you're gonna see a, some reflection in the capital availability. I mean, it will impact pricing at the margin. I don't think it's the end of the world. I think the trend is open, given the markets. But there's definitely gonna be a little more wariness and a little more focus on price from the buyers. And then the question to your point is, what happens on the seller's side?

• 36:28Speaker 00

  Do people say, I'm not gonna go out because I'm not gonna get my price?

• 36:31Harry Stebbings?

  Speaking of like what happens on the seller side, EA going take private at a $55 billion largest take private of this kind, Jared Kushner behind it. I'm just like, wow, that's impressive, Jared. Like, really, well done for being the broker behind this. How did you analyze that? It's a momentous deal.

• 36:51Speaker 00

  It's the largest LBO in history. It's 18 billion of leverage, which feels like a lot for a venture-backed deal. But you know, if this was an industrial manufacturing company, those dudes leveraged those things kind of six times EBITDA. So it's not a lot of leverage if you're a recurring revenue, you know, boring business, but it's a lot of leverage for a hits-driven games business. So interesting at that level. So yeah, biggest deal ever. But you know, I got to say Silver Lake are part of this and they've been astonishingly smart at the decisions they've made, you know, from Airbnb to I think the real killer is the Dell EMC acquisition where the Dell take private was a work of genius and has made Michael Dell one of the richest men in the world. So I look at it and I go, pretty smart money at the helm, quite a big ass deal.

• 37:36Harry Stebbings?

  And speaking of size that blows you away, I mean, as we said, largest deal there, one of the things that blew me away this week is the sheer size of data center requirements and energy capacity that Sam Altman needs with OpenAI. He would need more energy supply than India's capacity today in eight years. OpenAI planning to 125x energy capacity in eight years. Is this sustainable? Is this within his, I need hundreds of billions of dollars more to make what I plan to do? How do you analyze this unwaveringly infinite, insatiable demand for energy?

• 38:12Speaker 00

  Well, first of all, you're right. The energy demand is a outgrowth of the compute demand and the compute demand is an outgrowth of their ambition. And as long as the revenue keeps growing like it is and the capital keeps coming like it has, they're going to be allowed to make that bet. And as we said last week, it's pretty clear that he and the other five or six people making that bet, and it is only five or six people, are all going to make it until some unequivocal feedback comes back to say, Dude, this ain't working and you have to stop. That hasn't happened today. Will it stop on the road between a hun- what's the roughly a 12 billion run rate now and a $200 billion run rate in 2030? I mean, my gut is somewhere along the line it will, but the way life works is if someone's rolled

• 38:56Speaker 00

  the dice and won six, seven times in a row, he gets to keep rolling. And that's all you can say, really. I've really internalized this whole debate of like, you, you can sit and stare back in wonder and I actually find myself saying, what actually do you, do you do with this discussion? I mean, do you want, like, in the, you know, it's fun to talk about and each week, I mean, as we talk about it, you know, you do what a good little forecaster does. You update your priors based on new information. And that's what I'm doing literally every week, because we have some version of discussion every week. And the weird thing is every week, there's, you know, some hints that say, oh my God, this thing can work forever. It's typically, and this is my construct, it's typically in the, in the technology. New things like, I'm sure Jason thought, you know, Claude can now co-businessly for 30 hours with no human intervention. It's like amazing shit on the technical side.

• 39:41Speaker 01

  I did three hours myself. Yeah, it's going. It's a big change.

• 39:44Speaker 00

  So it's huge. And so the technology keeps moving forward, right? So if you look at this, my bigger heart, if you look through a science lens, this is all doable and possible. I think if you look through a finance and economics lens, at some point in the next two, three years, the scale of the ambitions becomes too hard to fund. And you can find evidence of that. And then you pays your money and you takes your choice. And in the end, you, you manifest that bet by deciding, do you want to buy your puts or calls on Nvidia?

• 40:11Speaker 01

  You ask about power for data centers? Here's just the weird thing I'm thinking about for what it's, I'm not an expert, right? I believe that Sam's going to solve this problem. But I believe like a lot of things, it's hard for us to appreciate the scale of the problem. So just the little hundred billion that he's doing with Nvidia, just the, the one where they just announced, right? Needs more power than all of New York City. It will only be a couple of years where the cities of the future don't even have humans in them. The ci- the next New York will all be GPUs. And like 20 people managing an entire city, a New York City of data, of GPUs. They will be producing, it's not just that it's a data center, it's the Output of AI, like an entire New York will have 20 people in it. We will be in this weird

• 40:55Speaker 01

  future where how many major cities do we have in the US? 20 or something like that? Half of them now will be just AI cities full of GPUs. Just this 10 gigawatts is more than New York. That's the weird thing. I'm like, what are they even going to look like? Our country will be dotted with these Stargates that are larger than New York City with only hundreds of people working in them and the equivalent of billions of digital minds. I think Sam will figure out fusion and the trivial things on the way to get there. But Jesus Christ, half our cities in the United States may all be just these massive Stargates with no humans.

• 41:29Speaker 00

  I'm going to zoom back out to the kind of wider concept and the thing I said earlier, but the technology says it's going to be exponential. I think the economics will grab hold of it. I think what Jason said was a microcosm of what will happen, you know? I don't think the level of growth, I think the growth rates will slow more quickly. I think all the practical realities required to make that much power, to roll out that much data, to sell that much software, to get enterprise to adopt that quickly. I personally think that the rate of adoption forecast over the next four or five, that's implicit in all these data center assumptions, will in retrospect prove to be too optimistic. So there, I've crept out on the limb and said it, we'll be revising those forecasts down over the next five years.

• 42:13Harry Stebbings?

  I feel very stupid, honestly, because I look at a trillion dollars required to fund data centers for OpenAI alone. I'm sorry, I don't know where that money comes from. I know we said, oh, there's 5x the demand for Anthropics round. That's cute. That's like 50 billion. This is a trillion dollars for data centers alone for OpenAI alone. Where is the money? Sovereigns don't have that.

• 42:34Speaker 00

  Well, actually, funny enough, they do. I mean,

• 42:37Harry Stebbings?

  No, no, they'd have to put it all in.

• 42:39Speaker 00

  Yeah, agreed. That's, well, I was just being precise, right? Maybe the better point, Harry, is you're dealing with numbers at that scale. A trillion dollars is a lot of money. I mean, the joke used to be Everett Dixon, quote, was a billion here, a billion there, and pretty soon you're talking real money. Now that feels laughable because the real truth is in OpenAI land, a billion here, a billion there, pretty soon you're not talking about that much. We're talking about a trillion. But a trillion, you're talking about real money.

• 43:04Speaker 01

  The trillion, here's, again, I've said it many times, I have more and more respect with the way Sam communicates, right? Simple things, said a little bit ahead of time, said more clearly than we realize, right? Including the beginning of Stargate, which I didn't understand, and why the hell Larry Ellison was there with Donald Trump, I didn't get any of it. I think he is willing the trillion into existence. I don't think the answer's clear, right? I don't think he can get every sovereign wealth dollar. But whatever it is, I think is sufficient. Here's my view of someone just that lives in the, in AI today. 12 agents, vibe coding two hours a day. If I had to stop, if I had to only use GPT-5 and Claude 4.5, and I couldn't get any more GPUs, and I couldn't run any longer context, and I couldn't do anything else, it'd be okay. Like, it would be a bummer.

• 43:49Speaker 01

  And what I mean is, it wouldn't have to stop, but let's say it had to slow down because there wasn't a trillion. So I think Sam is just willing as much of this into existence as possible because of the future. And if we come up short, if it's 400 billion or 600, like, we don't have to buy all the GPUs. Like, the world, it would be okay if they had to last six years instead of three years, or whatever the depreciation schedule is. So I think he's willing it into existence without it being a certainty, because we can't stop, we can't stop at 700 billion.

• 44:17Speaker 00

  I think that's actually right and quite insightful, and it allows us to make a really important distinction. And you see this a lot with the very best entrepreneurs, right? The sheer act of willing something into existence like this is just amazing. And the broad direction they took in 2016 on has been entirely vindicated, and it's entirely probable that the same broad direction is correct for the next eight years. And what that means is, as long as OpenAI stays ahead of that train, and on top of that train, they're going to be the winner. Whatever the prize is for being the best company in AI, OpenAI is going to get that prize. And that's his job, and he's doing it better than any other CEO of this decade. It is also equally true, as any CFO who's had an

• 44:58Speaker 00

  ambitious CEO knows, is just because the CEO says we're going to treble next year, doesn't mean we should buy real estate and hire people as if we're going to treble. Maybe we should plan for a double and be ready to hire more if it starts to happen. The problem is not big visions from a big The most visionary CEO of our decade. The interesting thing is if you start valuing Nvidia like as if all that's going to happen and more. If you start valuing Oracle as if all that debt's going to be paid off and more. Well, maybe we'll look back and say, we saw this visionary person leading us to the promised land with big metaphors like trillion. And we foolishly thought it wasn't a metaphor. We thought it was a P O. Right. And we literally borrowed money against the P O.

• 45:39Speaker 00

  Right. And, you know, I think five years from now, that's where you could be. You could be saying, oh, I get it. OpenAI is still the best company on the planet for AI. Its growth rate has slowed to a shockingly small fifty, sixty percent. It's fricking amazing. It's doing thirty million, billion dollars, growing at fifty percent. It's astonishing, but maybe they don't need a trillion dollars of capex this week. The ripple effects of that will be where the fun starts. And to me, that's at least as likely a scenario as we achieve the full kind of thing. Which gets to the metaphor of the CEO and the CFO of the. We've all been on those boards where you have the wildly aggressive CEO. And you don't want to trammel them. You don't want to say, don't be aggressive because their aggression is what made you all this money. But you do want to say, please get an experienced CFO who quietly will make sure that we don't run out of cash.

• 46:24Speaker 00

  That we don't actually spend that until we see the revenue coming in. And, you know, that's obviously what the economy as a whole perhaps should be doing here. Maybe we shouldn't be borrowing every dime on the assumption it's all going to happen. Every time I do this, I say to myself, how much should I have in the S and P this year? But it's been up. No cash.

• 46:40Harry Stebbings?

  I'm thinking less and less right now. I'm looking at it thinking I can't be this good. This has to be a peak. This has to be a peak, baby. We said there about like Sam, you know, you earn the right to do the next thing and he continuously does.

• 46:52Speaker 00

  Yes.

• 46:53Harry Stebbings?

  And then you also said about revisiting your prize. I always thought that Zuck earned the right to do the next thing. He earned the right to do the next thing. And I have to say, my faith in Meta's AI strategy has just dwindled and dwindled and dwindled. And I hold that in stark contrast to them being my largest public position, being very open.

• 47:15Speaker 00

  I sympathize. You just.

• 47:17Harry Stebbings?

  Never bet against Zuck, but I'm looking at it. I'm looking at Alex Wang. I'm looking at the treatment of Yan Le Cun. I'm looking at how they structure teams and I'm going, this is not well run. OpenAI, Anthropic are coming for you. Microsoft and Satya are fucking great. Sundar's got Google. Am I wrong to have such unwavering allegiance?

• 47:35Speaker 00

  Well, it doesn't sound like you do. It doesn't sound like you do. You're voicing disloyalty here. If the, yes.

• 47:42Speaker 01

  Well, one thing's clear. Listen, he is not the communicator that Sam Altman is. Getting up there with the thick glasses, and I'm gonna buy him, saying things that just, if I don't understand where the hell he's going, and Harry doesn't understand, not saying he's not getting there, but good God, we don't under, we don't understand, he's not one of the great communicators at the moment. Mark Zuckerberg, he might be a great connector with technology, because this, this Facebook engine is unkillable. But man, he's a crappy communicator, right? Because none of us, I'm not saying his AI strategy isn't S tier, but I don't think any of us understand it.

• 48:15Speaker 01

  Not for the life of us, where the hell it's going.

• 48:17Harry Stebbings?

  I think you can say it isn't S tier. It's a desperate attempt to throw money at a problem and bring in dream talent, and try and throw it together in a way that hasn't worked very clearly, very quickly.

• 48:29Speaker 01

  Yeah, but he was clear just this week, he'd rather burn the 20 billion in operating income and fail, than become irrelevant. That, that, like, that was Altman level of clarity, but maybe not in the way I wanted to hear it. But it makes total sense. Like, he'll burn every 20 billion of operating income to be in play, rather than not be at the game, right?

• 48:47Speaker 00

  Agreed. I mean, and I think there's a lot to unpack in that. That statement is the most important statement. The man who owns with untravelled power the 200 billion revenue, whatever it is, 70 billion free cash flow business, is totally willing to spend the money. So, so the bet's gonna happen. The bet's gonna happen. Because that's his evaluation of the risk return. And then to the point you echoed back for me, when you're successful, you earn the right to roll again, right? Which, and I said that, and I stand by that statement. But there's two different statements. You earned the right to roll again, which doesn't mean you were right. If there was a Calci bet, and maybe I should check it, that, you know, some version of, this AI strategy will not produce meaningful revenue despite a $20 billion burn, and will look more like Meta VR, and less like Instagram and WhatsApp,

• 49:30Speaker 00

  two of the most brilliant acquisitions of the last two decades, I'd take that bet. And I'd also be glad to have backed a leader who got two, remember, you get two right, you get two wrong. The two right more than swamp the two wrong. If, if he was just building a venture portfolio, he'd have a 50% hit rate, and he'd have a wild DPI. I don't get it. For this deal, but there you go. Agreed.

• 49:50Harry Stebbings?

  You do, but it doesn't mean that you rate the quality of their decisions in the way that you used to.

• 49:54Speaker 00

  Well, you're right. It's a harder bet. And that's why, you know, people are obviously vitally important, especially CEOs who are on some of power. But to some extent, the wider comment is the bet for the last 15 years was writing this brilliant invention that you had in 2003 and just optimizing it. And that's hard, but it's a lot easier than now you got to invent a whole new thing a second time. And, you know, with the exception of Mr. Jobs, very few people have ever built a whole new thing differently, right? Because Jason's right. The zoom out comment here on risk on AI is not the AI is going to help us target ads better. That's in the noise. The big picture comment is if you spend two hours a day on chat GPT,

• 50:36Speaker 00

  that's two hours a day that you are not spending on Facebook and we live and die on our attention. So we're just going to make shit until somehow we get people to come back and play with us. We're going to have characters whisper sweet nothings in their ear, whatever it takes.

• 50:49Harry Stebbings?

  How significant do you think it is that chat GPT now enables like a buy in chat GPT feature? Totally opening up commerce so users can absolutely buy following recommendations and suggestions.

• 51:01Speaker 00

  It's clearly a trend they're all exploring. I mean, Google, there's two different kind of even syndicate, whatever, protocols on this. One from Google, one from chat GPT on how to do this. All companies that are involved in e-commerce are kind of looking at this. There's clearly going to have to be some monetization of all these free users because as we just discussed, this stuff is $1 trillion worth of expenses and $1 trillion isn't going to cover itself. There's only two or three things you can do with free users. You can sell them shit or you can sell advertising to them. So they're going to press this button. This is obviously going to happen. I'm sure the other shoe to drop at some point is advertising. So it all makes sense because it's one of only two ways to monetize the free users. So it's going to happen.

• 51:40Harry Stebbings?

  I just think it's an experiment.

• 51:41Speaker 01

  Yeah, exactly. I think we'll see a lot of these and it'll be confusing to us because they'll all get a lot of PR. They'll drag out the Collision Brothers or Toby and they'll all do joint PR. But whether for OpenAI, this is a top five initiative? Or whether this is just another integration at the end of the day, I'm just not sure. I'm just not sure. I mean, is this the future of e-commerce on ChatGPT? There's, we'll see. There's a lot of arguments it isn't. There's a lot of arguments that's not how people buy the hottest shoes or the hottest watch today. There's a lot of data from Instagram and Pinterest talking about how people purchase. So you gotta do like 2 billion of revenue to move the needle at OpenAI for next year, right? Will this math add up? Maybe, but if it's not material, it's just an experiment or a feature, right?

• 52:22Speaker 00

  I think what you said, Jason, actually that reminded me, and you're exactly right, is they tried versions of this in Facebook and Instagram as well. And what they discover is, for whatever reason, people are really comfortable with advertising on these platforms and just less comfortable with purchasing on these platforms. And I don't know if the metaphor applies one to one, but it's hard not to imagine that if you were to pick the thing to do that would be more easy, it would be some version of advertising. But we'll see. I like your comment. We're growing so fast, we're burning so much that if you're not actually stemming the tide at the billion dollar level, you may not even matter here.

• 52:54Speaker 01

  You gotta think in billions to have a new product, right? You've got a CEO of apps. I think that's a tough job. This is coming in like, you know, when it took a little while for Google Cloud and Google Apps to figure it its footing because the numbers were so big, right? It used to be Google internally almost made fun of Google Cloud for years because in the old Diane Green days, it wasn't even a rounding error, right? It was a distraction. Now, obviously, it's a force of nature, right? It's a tough job because if I'm the CEO of apps, I've got to come up with a couple multi-billion dollar revenue streams that get there in like two to three years? Like, that's non-trivial.

• 53:25Speaker 00

  And then just for context, just to say it because I can't stop myself, there's a thousand billions in a trillion. And if you're going to spend a trillion in trapez, you're implying that you have a thousand billion dollars. It brings into scale, you're exactly right, which in my view, it exposes the absurdity of a trillion dollars of capex. It's going to be really hard to cover that nut.

• 53:44Harry Stebbings?

  I do want to discuss one very, I think, important one, which is FiveTran in talks to buy DBT. Both were super hot companies. DBT was really super hot. FiveTran reported last time 400 million of ARR. DBT said before it was 100 million. Taking them together, given gross rates, there'd be over 500 million if they were to combine. How did you guys analyse FiveTran buying DBT in this combination coming together?

• 54:09Speaker 00

  Smart, and I'll tell you why, because the products seem to be adjacent, so they make kind of better together story. There's always puts and takes one level down, you know, how well the customers overlap and that kind of stuff. But at a zoom out level, this is the kind of thing that simply has to happen over and over again in everyone's venture portfolio. Because we have 600, 700 unicorns. We've processed 515 out the IPO gate year to date, so 20 for the year. That implies we've got 30 years of this stuff to get through. And every time two companies combine, we have the unicorn list. You know, it takes two mid-sized companies. I mean, 400 was nearly there. This is part of the job venture's going to have to do to whip their portfolios into shape to be IPO-able.

• 54:53Speaker 00

  Right? And it'll be noisy, it'll be hassle. I'm sure all the drama of private to private.

• 54:58Harry Stebbings?

  Did the DBT investors do okay in this transaction? How do you expect this to play out?

• 55:03Speaker 01

  I thought when I saw it, right, because I tried to do one of these myself recently, but I'm not Andreessen Horowitz. The fact that Andreessen is the leader, close to it in both deals, makes it much simpler on many levels. Not only does it make it easier to get people together in the conference room, right? Not only does it mean you already know each other, but just on paper, if Andreessen owns 20% of FiveTran and 20% of DBT and you combine them, it does kind of suck when you own 20% of a portfolio company. Combine it with another leader, totally makes sense on the spreadsheet, great outcome. And now I own 8% after the deal. I go from 20 to 8 because I combined them and there's dilution and all this. It just is, it may make sense in the real world, but if I own 20 and 20 and I got 20 together, these deals, there's a million reasons you should mash your own portfolio together. It just makes it easier.

• 55:48Speaker 00

  It does make it easier, but I understand what you're saying. And just to be clear, what you're saying is if I had ownership in one Company but not the other. I have twenty percent ownership. So I have twenty percent of upside. And now you merge. It's a fifty fifty deal. There's some dilution. Now you're down to eight percent. And that is fundamentally the reason why these deals are hard. The preference stack makes it even harder. But even on an ownership basis, there's a little part of you thinks I have this little at bat. And if this company takes off, I'll get twenty percent of the upside. And when you do this deal, you're saying if this combined company takes off, I'll only get eight percent of the upside. So your leverage of your bet has diminished markedly. So I get it. And I remember thinking that when we'd look at some of these deals. But what you've got to internalize, and I think these guys have done a really good job internalizing it, is

• 56:30Speaker 00

  yeah, twenty percent of something that's not going public is not nearly as interesting as eight percent of something that is going public. And if you believe that it's not a continuum of value, you know, sliding scale of value, but rather it's like electron states, there's just a gap. And then you got to go to the next state. If you're above critical mass and you can get public, you get the cheese. If you're below critical mass, then your only option is Tomo Brava and whatever pain that that involves. And, you know, we've had these discussions in some of our companies. Would I prefer to have twenty percent of my bet? Yeah, but I prefer to have a bet that's worth something. And I don't mean worth it in the sense that a hundred million dollar company is not worth it. But if you want to get to the IPO and the IPO windows for three, four hundred million dollars, you got to do what you got to do.

• 57:12Speaker 01

  Of course, but if you believe the upside is not bounded per se, right? If you're optimistic, it's so much better to combine two portfolio companies and own twenty percent together. I understand you're in, you can't argue the intellectual argument, but it's tough. VC firms are a collection of GPs and it's a collection of interest. And if my one winner goes from twenty to eight, that's tough enough as it is. But owning twenty percent of something that is accretive, it's hard to argue against that intellectually or emotionally, isn't it?

• 57:39Speaker 00

  Emotionally, yes, but intellectually, no. You're right. I get it. I do the anchoring. And, you know, something you guys asked about last week or two weeks ago about, you know, individual portfolios, I, again, I often do this. I sleep on my answer and revise it. Individual portfolios should be less diversified than group portfolios because there's some value to the firm. And this is another one of the values. The firm has to be able to, we have to talk as a partnership and say, yeah, even though you're going to go from twenty to eight, this is Something we need to do as we think about liquidity. So it's not ideal, but there's no point hanging on to a dream that's not going to happen. When you can get a reality that is and look, the fatal mistake that always scares me is not the dilution. The thing that scares me is you go from a decent deal that's well run, where you know everything about it.

• 58:23Speaker 00

  To merging with something else and then the combined entity screws it up. That to me is the really shitty outcome where you took your 20% bet and turned it into 8% of a disaster. Which is why picking the partner and having it make industrial sense is key. And that's why I think this deal felt to me from a distance, like I'm not the infrastructure guy at scale. But it felt to me from a distance like that's, that's a damn smart, obvious combo. That will get critical mass. I mean, you won't be looking at the S1 going, why are these companies together? You'll be going, oh yeah, I get it.

• 58:51Speaker 01

  There was a deal superficially similar to this, right? To the numbers that I tried to work on, there's the A investor, the seed and the pre-seed. And the A, the A investor wanted to jam two of his companies together.

• 59:03Speaker 00

  Well, you were just telling him to.

• 59:05Speaker 01

  The, the, the pre-seed investor had another company that I thought was mid from his portfolio that he wanted to jam together. But I get it. It was, it was, it was almost as big, but, but mid. And then I had this idea, I'm like, listen, I have a third company, a fourth company to combine. I have no shares in this other company. Okay. I'm going to go through 50% dilution, but I know the CEO and he's the best in the industry. And the, the A idea and the PC idea were both fine, but both would maintain ownership and their own thing and their own properties. And nothing's happened.

• 59:36Speaker 00

  And that's why you need to be an active investor. That's why you need to be a board member. Because it is tempting to try and take care of yourself at the same time, but you can't. Because the whole point of this, because remember, the bad thing about doing that is you actually will create the situation I just talked about. If the CEO isn't saying these companies obviously belong together, then it's probably a dumb idea.

• 59:55Speaker 01

  Yeah. When the CEO doesn't drive it, it's weird too, right?

• 59:57Speaker 00

  Totally. No.

• 59:59Speaker 01

  Yeah. This is what happened with Clary though, no? And this one's easy to be critical of, right? It's easy to be a critic. It's just combining a series of some properties that Vista has under invested in. With another one that has scale, but isn't growing. I mean, it's easy to say this is the bad version of Rory's story. Rory's saying, we got to. Combine eight hundred B to B unicorns or whatever it is, right? But mashing together a bunch that are growing single digits is the suboptimal strategy, right? If that's the case here, I mean, drift is probably shrinking based on just looking at how the deal happened, right? It's probably shrinking, but and leaking all the Salesforce tokens for cloud, leaking everybody's data too, because.

• 1:00:32Speaker 00

  Yeah, I mean, they obviously have that drift. I, because, yeah, to take it on the chin and push back, but agree in a way. The combination of a sales loft type company and a Clary type company makes a ton of sense. You have a sales engagement platform and then you have a forecast. It's intuitively makes sense.

• 1:00:49Harry Stebbings?

  I wonder if tech P now question their business model a little bit more. When they see the multiples that you can get on the money that's being moved by your Kush and your big firms, combined by the increased loss ratio that will happen from an increasingly volatile new AI world. Are you suddenly going shit? I'm not getting paid for the risk that I'm taking on the multiple on the upside, given the displacement on the downside.

• 1:01:13Speaker 00

  To be explicit, because you didn't make it up, what is what you're saying? Are the tech PE people looking at their business model that looks so secure for so long of buying SaaS companies? And just running them, paying down the debt and optimizing? And are they saying this mightn't be, this might have more risk than we thought and less upside than the other game?

• 1:01:33Harry Stebbings?

  One hundred percent buying your pipe drives or your Coopers or your, you name it. It's harder than ever because as we said, opportunity cost wise, you can move more money with better multiples elsewhere. And then secondarily, displacement wise, there's more and more ways in which they're getting attacked through better and better startups.

• 1:01:51Speaker 00

  They might be saying that, just like sometimes we say, oh, my God, PE looks so easy. They just have these big sums of money and they do it. I think it'd be a mistake. Generally, the record of people trying to transition to a totally different sector is pretty mediocre. To my view, going from what they do to making non control, late stage investments, just because, you know, pick a name, thrive, do that well, would be, in my view, stupid. Because driver really good at that and they're not. They should be saying, any deal we underwrite today, you better have a clear understanding of the AI downside risk to Jason's point. And if. You have a lot of downside risk, maybe you shouldn't be doing this. Because I do agree you're there is that it'd be fun to speculate on how. I don't know, actually, Jason, it's like, how embedded would a

• 1:02:34Speaker 00

  non-AI app have to be for you to say this thing is good for five more years of revenues?

• 1:02:40Speaker 01

  The problem is, I think P thinks about this maybe from a slightly different perspective, but I think this is the concern. Anyone that like us has been doing B2B for a while, these products didn't change from about two thousand and eight until twenty twenty-three. They're the same products and the Brian Halligans will agree. And I said this with Henry Shuck and he's like, yeah, I didn't, you know, we looking back on it, none of our products changed for a decade, right? And so it wasn't just that we had high NRR, which was the spreadsheet glue for the P model. I led the C round and Pipe Drive and that product didn't change for, it took them four years to launch a mobile app. You had four, you used to have four years to launch a mobile app. That was my first venture investment. It was a billion dollar cash exit, billion and a half.

• 1:03:20Speaker 01

  My first investment. Could you imagine today waiting four years to launch your AI copilot like you're dead in the water, right? And so that was the part that was underappreciated, under discussed. Yes, one hundred and forty percent NRR meant we could buy Marketo and fire everybody, but the products can't be static and it's, and AI is the accelerant there, right? But that's why I worry. I worry there aren't enough buyers for any of this stuff, right? Because it's the rate of change, it's unprecedented in business software.

• 1:03:48Speaker 00

  I just want to kind of double whatever cliche is on that. That is such a big insight. Right? Because and you're basically, there's two consequences of that, like you're right, there was fifteen years where we made the same product and you didn't have to think that much about product direction at the macro level. It was, you know, roughly the same form factor. I mean, you look at Salesforce two thousand and two and two thousand and twenty-two, it's the same thing. And that's now changed. That's huge and it's huge. So there's two consequences though for both sides of the table. On the PE side, you're exactly right. You look at that and you go, I mightn't get away with next ten years making the same thing as, you know, and not changing it. And so maybe I'm entering into some kind of tech risk that I've never before internalized. And the weird thing is, even on our side of the table for these new post LLM startups, I'm finding that, I think we talked about this before, is that

• 1:04:32Speaker 00

  product market fit, when you locked into it in SaaS land, you just didn't unlock for ten years. Whereas here you can lock in and out of product market fit as the models change. And you look back on the product a year ago and you feel, oh my God, it feels totally obsolete. So there's more risk on our side of the table too, I think.

• 1:04:49Speaker 01

  That's why it's good. The growth is higher because the risk it's less stable.

• 1:04:52Harry Stebbings?

  I think to your point where it's what makes our job harder than ever. And I'm not asking for sympathy. I know it's not easy making money, but that's what makes it harder than ever. The predictability of markets in old days was easier.

• 1:05:03Speaker 01

  Yeah, a lot of things Jeff Lawson said, I'm still processing. It was a good show, even if people that they should walk, go watch that one if they didn't. You know, his point was that if he were running Chilio today, it would be probably thriving because he sold at the API level and could benefit from the AI boom, right? I've seen that with revenue cat and others in my portfolio and that the seat model is under risk, right? And I got burnt out of LinkedIn, people saying the seat is dead because it's obviously not true at some level. Seats are growing, but good God, now that we're running 12 AI agents, you know, we only need two seats of Salesforce.

• 1:05:34Speaker 00

  Because you don't have the people.

• 1:05:36Speaker 01

  We just don't. And yeah, and if Salesforce, if Agent Force can do all 12 of those agents, then we'll, we'll actually end up paying more to Salesforce. It hasn't happened yet. But this change of not needing as many seats, it's, we thought it was a layoff thing in 2022, 2023. Oh my God, we're laying off people like smaller headcount is an issue, but ultimately if the economy grows, you get past it, right? You get past the layoffs and the companies reaccelerate. It's a transitory thing like a, like a global pandemic. But the agents taking over humans and less seats and software, my God, it makes the P model worse and our jobs harder. It just, because now we have like six agents that plug into Salesforce. They're like six human equivalents, but Salesforce may change their API pricing, but they sure don't need a seat. It just makes it even tougher for P to buy these seat models.

• 1:06:20Speaker 01

  Not only the products not last a decade, but the AIs don't need as many seats.

• 1:06:25Speaker 00

  Totally. I, I, two things on that. One is you, you know, you're exactly right. Seats don't have to go to zero to be a lot more variable than it used to be. But then the second is, I was thinking of you, Jason, because you know, you are always, if I may say it so pleasantly, so brutal about the impact of AI in terms of employment and the consequences. And I always recoil because you're feels a little mean, but I prefer the way you talk about it to this version of corporate speak. Let me give you corporate speak. I saw it and I'm not dumping on it, but the CEO of Accenture, the quote when they said they're laying off a bunch of people. Right? We are exiting on a compressed. Timeline, people were reskilling based on our experience is not a viable path for the skills we need. Now, that's just a brutal corporate speak epitaph.

• 1:07:08Speaker 00

  You think we think you're no good in the AI world, you're out. I just thought it's entirely correct. There's nothing objectional about it. It was just such a wonderful mix of corporate speak plus finality. I just had to laugh and print that out today and look at it. Wow, there you go. We are exiting on an expedited timeline, on a compressed timeline. All you people who are no good. Have a great day.

• 1:07:28Harry Stebbings?

  I'm gonna finish on my wildcard, which I'm not naming names and it is not political. But we always stick to advice for founders. And as we move into a more and more political world, do founders have a primary fiduciary role to team members, investors, shareholders, to do what's best for the company over freedom of political expression?

• 1:07:52Speaker 00

  It would trouble me to say yes, in the sense that it would trouble me to think that just because you're the CEO of a company, you're not entitled to your personal opinion separately from that. It's a reflection of the times that you'd have to even say that, because you should be able to dissociate the two most of the time. And I have been on boards where we've wrestled with that. You have particularly outspoken CEO. And I've come to the conclusion that if they're expressing their personal political beliefs on a personal basis, I would be actively resistant to stopping them.

• 1:08:23Harry Stebbings?

  Even if it had an impact on the company?

• 1:08:25Speaker 00

  I think the recent trend at the company level of saying less has been smart. You know, I think a lot of companies took a lot more positions three, four years ago. And it's been almost fun to watch, just like universities. They've realized that speaking as a corporation, you probably should stick to the mission of the corporation. The in the university language, the University of Chicago principals have been proven to be so much cleverer than anything else, that all those other people, all those other colleges are scrambling for that safety. And I think as a company, you probably want some version of the same thing. You just want to stay out of the culture wars, especially when they're so vehement. So as a company, I think companies should stay out. And I think think long and hard before getting into anything else.

• 1:09:08Speaker 00

  I think what's hard and I'm just struggling with a little is when you're the CEO, do you really give up all personal right to have a political opinion? It's worth pointing out that there are a lot of roles in society where the job does involve exactly what you said, Harry, not having a political opinion. It used to be, for example, people in the military were scrupulous about not declaring their political opinion. When Eisenhower was solicited for candidate for President of the United States in 1952, they didn't know if he was a Democrat or a Republican, and both sides asked him to do the job. I wish that wasn't the case, but actually the wisdom from some of those old learnings of staying out of it is making me tweak my opinion a little. Do you understand what I'm saying? I want everyone to be able to have, because I think everyone in this country should be able to speak, it's why this country is so fricking amazing, right?

• 1:09:53Speaker 00

  And say their opinion, and we gotta get a lot better at not trashing other people for it. But I do recognize, in some cases, institutions. There are other examples of institutions that don't. It would seem a shame that that needs to extend, but I understand the point.

• 1:10:06Speaker 01

  Well, I'll give you a tactical answer, especially for folks that are active on social media. Once in a while, you'll say something that either you shouldn't, or maybe you should, but you went too far, or you said it the wrong way, right? And there's folks like Harry, I have known each other for a long time. I can't think of very many times, but I think a couple of times, one of us has DM'd the other and said, hey, here's a tweet, maybe you didn't really mean it. And we've deleted it or modified it. It happens not, it doesn't happen all the time, but it's happened multiple times. There's a level of trust. And Harry and I have done this, and I've done this maybe with 10 CEOs that I know a little bit, okay? Like, I would do it with Jeff Lawson, who I barely know, I would do it with Brian Hall. I'm not saying I have, but I would do it with folks like we've had on the show, right? And I've done that multiple times. I've said, listen, you be you, but just to let you know, this tweet may not have landed

• 1:10:48Speaker 01

  the way you thought, or it might bother some folks on your team, or it might bother some folks, right? I can only think of one public company executive who responded positively to that. Not that no one was negative, no, because it, no, I don't do this all the time, I'm not, I don't think I'm preachy. It's always a quiet thing, I try to be, but, but I only do it when it's, when I know the impact was more than they thought. But I can think of one that all three of us know well, where he was like, holy crap, I didn't, I didn't, like, thank you, sort of thank you. Like, it took- A beat to be, thank you. It wasn't an instant. Thank you. At first it was like, you're wrong, but it was a thing. But every other time, and not only if I, what I've been told by all the other nine or is,

• 1:11:29Speaker 01

  you might be right, Jason, but I don't care. I feel so strongly about this. If I alienate 40% of my customer base, if I upset some of the less represented folks on my team, if I do whatever, I, I feel so strongly, I don't care. I just don't care. And so I've become much more reluctant to do that and it's rare, right? I only do it the time where I think I can really be helpful. The moment I see what I think is a mistake, I do maybe once every four or five months, but I can only think of one where it was well received. And so what I learned from that is it, like a lot of things in venture, and this, these aren't companies I invested in, but these are public company executives I know. It doesn't really matter what I think and I will provide some feedbacks at times and I'll provide it multiple times. And at some point it's your company, it's your keys.

• 1:12:13Speaker 01

  It's an interesting theoretical question. I think I a hundred percent agree with Harry's point, which is this is bad for business.

• 1:12:18Harry Stebbings?

  How important is it to post that? There was no need to post that.

• 1:12:22Speaker 01

  We agree, but what does it matter what you and I think? My learning is some folks who have been on your show, some folks who have very strong opinions that are very, I've talked to just a handful and they, they're cognizant of the risks, they're cognizant of the downside. It's not a mistake. Every once in a while, someone makes a mistake. They're cognizant of what they're doing.

• 1:12:38Speaker 00

  I'd love to ask someone like Brian Armstrong, their opinion on this. Cause remember there is a distinction between bringing politics to work and not having that, which I think has been validated as the correct strategy. And I think that's almost, I won't say fully a given now, but I think that would be the concept. Cause everyone tried the other theory and tested it to destruction and failed. As a board member, I would struggle to attribute some business blame to someone having a personal opinion. That's clearly their personal opinion, because we have free speech in this country. It shouldn't be. And then you could say to yourself, well, let's just, I mean, you had to play out the other extreme. What happens if that personal opinion alienated 50% of the country such that they literally canceled all your business? Then you could argue at some point, maybe you aren't the right person to run that company, but.

• 1:13:20Harry Stebbings?

  Or your team left. Ten great engineers leave.

• 1:13:23Speaker 01

  But my learning is nine out of 10 of the executives are fine with that. Let them go. I think Brian Armstrong was fine with it, wasn't he? And I didn't agree with Brian, but I think he said, go, there's the door.

• 1:13:31Harry Stebbings?

  The one thing I do think is like the attention economy is also more fickle than ever. And just like deal and rippling was such a big deal. Actually, everyone forgets it.

• 1:13:40Speaker 01

  No one cares.

• 1:13:41Harry Stebbings?

  This story, whatever story, do you remember that Elon and Donald Trump broke up in the most blazing of rows?

• 1:13:47Speaker 00

  I think that's actually very insightful, Harry. Just, just keep moving forward. You know, people move on. So the rearview mirror, it vanishes so quickly.

• 1:13:55Harry Stebbings?

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• 1:14:39Harry Stebbings?

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• 1:15:23Harry Stebbings?

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• 1:16:07Harry Stebbings?

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